Wells Fargo & Co. (NYSE:WFC) has tentatively reached a $1.2 billion settlement with federal prosecutors over what the government has called a practice of "reckless" mortgage origination that took place in the years before and after the subprime mortgage crisis.
Announced in a securities filing Wednesday, the agreement would settle civil charges with the Department of Justice, two U.S. attorneys and the Department of Housing and Urban Development in what could be one of the final mortgage-related settlements between the government and a major bank resulting from the crisis.
Wells Fargo was accused in 2012 of engaging in what Manhattan U.S. Attorney Preet Bharara called a "reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all relying on the convenient backstop of government insurance" from 2001 to 2010.
According to the civil complaint, bank officials knowingly included tens of thousands of faulty loans amid the 100,000 mortgages Wells Fargo submitted to the Federal Housing Administration in the 2000s.
In certain months, nearly half of the loans submitted fell short of proper underwriting standards, the government said, laying the blame on "management’s nearly singular focus on increasing the volume of FHA originations." Prosecutors alleged that even after reviewing loans submitted to the FHA for self-reporting purposes, bank officials actively covered up thousands of improperly certified mortgages.
The filing stated that Wells Fargo's 2015 year-end earnings would fall by $134 million, or $0.03 per share, after adjusting for the payments. The settlement has yet to be finalized.